Funding Sources for Thermoelectric Power Plants
Is It Possible to Finance Thermoelectric Plants in Cuba?
On October 13, 1960, the banks in Cuba were nationalized. The possession and circulation of the dollar, which until that time had circulated alongside the Cuban peso, were prohibited. From February 23, 1961, the National Bank of Cuba (BNC) took over all banking functions. On August 5, 1961, a currency exchange was implemented, rendering all the nation's accumulated capital worthless. With the Cuban peso losing its convertibility, everything produced domestically and not exportable became valueless in international markets.
The loss of money as a standard for prices, a store of value, and a means of payment for the exchange of goods and services, combined with the inefficiency of the economic system, resulted in the paralysis of the economy. The scarcity of goods, the rationing of food, essential goods for daily life, and fuel became quickly evident. The export of goods is possible but only at the expense of restricting domestic consumption, investment, and the maintenance of existing infrastructure. Economic paralysis was not as visible, as it was concealed with countless subsidies, acquired debts, aid to underdeveloped countries, and donations.
In other words, production ceased, creating a need for imports, which in turn required freely convertible currency, while the economy generated Cuban pesos that could not be used for importing.
In the specific case of electricity generation, foreign currency is required to build and purchase equipment, maintain them, and buy fuels, while most of the electricity generated is sold in Cuban pesos. Furthermore, the nation’s resources have not been utilized to create industries that generate exports, nor have they been allocated to the energy sector. Debts have not been paid, not even to the main trading partners.
On top of this, there is the exodus of human capital. Initially, the majority of the skilled workforce, which was deemed incompatible with revolutionary ideals, left. Then, those considered "worms," "lazy," and "scum" followed, most of whom successfully rebuilt their lives and created countless businesses. Finally, the rest left, tired of harsh living conditions and the impossibility of modern life improving their quality of life. The strategy of the inverted pyramid prevails, where a hotel porter earns in one day what an engineer makes in an entire year.
The last individuals who received a relatively high technical education level graduated in 1989. Those who did not emigrate are now about to turn 60 years old, having lived mostly on wages of less than one dollar a day.
Who could offer financing to help Cuba emerge from its deep crisis? Let’s look at how its main partners have behaved:
Russia
As the successor to the Soviet Union, after its bankruptcy in 1989 and subsequent disintegration, Russia has played a diminished role. In 1960, the Soviet Union lent Cuba $100 million and began buying its sugar at prices above market rates. From 1973, it started supplying oil below market prices. Trade between 1970 and 1989 reached $107 billion. On April 2, 1989, Mikhail Gorbachev traveled to the island and recommended Fidel Castro restructure his economy. Castro responded that Cuba would not adopt such reforms. In 1991, the "Special Period in Peacetime" began, lasting to this day and entering a phase with living conditions even worse than in the early 1990s.
Vladimir Putin, as Russia’s president, traveled to the island between December 14 and 17, 2000, aiming to resume cooperation and seek repayment of the USSR debt. In 2002, Putin dismantled the Lourdes military base. In 2014, Putin forgave 90% of an unpayable $35 billion debt in exchange for Cuba buying four generating units from Russia with the remaining $1.2 billion owed. The investment never materialized. On February 2, 2022, Putin invaded Ukraine. The scale of international sanctions will make Russia’s return to the global economy very difficult. Russian visits to the island mainly consist of members of the Ministry of the Interior.
Venezuela
In 2000, Cuba began its occupation of Venezuela. Between 2000 and 2011, 370 collaboration projects were signed, and another 116 in 2014. On December 14, 2014, ALBA was founded. From 2000 to 2014, Venezuela sent Cuba over 450 billion barrels of oil. On April 17, 2016, Hugo Chávez declared that Cuban medical services cost $250 billion. In 2020, Rafael Ramírez, former president of PDVSA, stated that $700 billion were lost during his presidency at PDVSA. In 2024, former PDVSA president Tarek Al Assami was arrested for stealing $23 billion.
In 2008, the Bolívar was replaced by the Bolívar Fuerte (equivalent to 1,000 Bolívars). In 2018, the Bolívar Soberano (equivalent to 1,000 Bolívars Fuertes) was introduced. In 2021, the Digital Bolívar was introduced, equivalent to one million Sovereign Bolívars. The average salary in 2023 was $3.5 per month. Venezuela’s external debt is estimated at around $180 billion. Out of a population of 28 million, 7.7 million have emigrated. Nicolás Maduro lost the 2024 presidential election but refuses to step down. His illegitimate mandate will face further challenges starting January 10, 2025. The reaction of the new U.S. administration beginning January 20 remains to be seen.
China
China forgave more than $6 billion of Cuban debt in 2011. In 2014, it donated buses and financed the Ciro Redondo bioelectric plant. In 2017, it financed the modernization of the port of Santiago de Cuba with $100 million. In 2018, Hive Energy and SE Energy Investment signed an agreement to finance a 50 MW facility in Mariel worth $60 million. It also donated two solar parks: one of 4 MW and another of 5 MW.
In 2020, China donated $42,000. In 2021, it donated ventilators and other supplies to combat COVID and 5,000 solar panels. In May 2021, Cuba joined the Belt and Road Initiative, though its contribution remains unclear. In March 2022, China donated 5,000 tons of rice. In 2023, it donated $100 million, a 5 MW solar park, and signed 12 cooperation agreements. In January 2024, China donated rice, oil, and flour; in June, 20,000 tons of rice and three solar parks worth $114 million. In September, it donated 10 generators with an 18 MW capacity.
Since 2015, trade between the two countries decreased by 50%, reaching $1.3 billion in 2023. In October 2024, China broke trade agreements with Cuba, including the supply of 400,000 tons of sugar annually. China’s cooperation focuses on cyber control.
Spain
The Cuban government owes Spain about $2 billion and has repeatedly told 300 Spanish entrepreneurs to patiently await payment. In 2015, Spain forgave €110 million in debt, while €40 million were allocated to subsidies for Spanish companies. Another $1.7 billion were forgiven under the Paris Club agreement. Cuba’s debt represents 66% of all Latin American debt owed to Spain. Most Spanish investments are in the tourism sector. Trade exceeds $1 billion annually. In November 2024, Israel Arroyo, Spain's Secretary of State for Economy and Business Support, described the debt problem as difficult to resolve.
Mexico
The Cuban government has two strategies to escape the crisis: live off donations and turn Mexico into the next inexhaustible source of resources.
Since 2018, Mexico has faced a process of legal system destruction, turning PEMEX and the CFE into unprofitable state monopolies, dismantling judicial autonomy, and reducing DEA personnel to a minimum. Political parties have been infiltrated to paralyze them, fostering “hugs” with drug traffickers to transfer millions of migrants to the U.S. border, generating violence against journalists and the opposition. The Armed Forces have been allocated billions of dollars for projects that should be executed by the civilian sector, enabling them to control borders, customs, ports, and airports, facilitating uncontrolled transfers of goods to Cuba. “Republican austerity” has also been implemented, including budget cuts in health, creating the need to import doctors and medicines from Cuba, replicating processes previously carried out in Cuba and Venezuela.
Mexico will face a complex path with Donald Trump’s return to power, along with Marco Rubio as Secretary of State, prioritizing immigration reduction, fighting drug cartels, and preventing the Cuban government from taking over Mexican resources.
BRICS
On October 26, 2024, Cuba joined BRICS, though its strategy remains unclear aside from seeking to belong to a new world order excluding the United States. The organization plans to replace the dollar, though execution will be challenging.
BRICS was formed in 2006 with initial members Russia, China, Brazil, India, and South Africa. It founded the New Development Bank. Russia leads efforts to replace the dollar, but its national bank only accepts dollars and euros. China and India vie for global leadership and won’t take steps benefiting the other. Brazil is open to an alternative to the dollar, but only long-term.
China is the only member with a digital currency but restricts capital exports. In 2022, China exported $551 billion to the U.S. Both Russia and China face steep population declines, reducing their global roles over the next decade. China has over 1 billion vacant apartments. Brazil vetoed Venezuela’s BRICS entry. One key route in the Belt and Road Initiative passes through Ukraine, currently disrupted by the Russian invasion.
The Cuban state is left with the United States, which has imposed a trade embargo under the framework of the Trading with the Enemy Act and will most likely keep it on the list of State Sponsors of Terrorism due to its anti-American activities in collaboration with Russia, Iran, China, Mexico, and Venezuela.
The other option is the World Bank, which offers low-interest loans but requires countries accepting its credits to undergo an economic restructuring process that enables them to become self-sufficient and progress toward development—a concept with which the Communist Party of Cuba has never agreed.
Original Article in Spanish: ForesightCuba